Bush administration calls again on the Fed to boost economy with interest rate cut.

WASHINGTON - Senior Bush administration officials yesterday called on the Federal Reserve to lower interest rates again after the Commerce Department reported that real gross national product advanced at an annual rate of 2.4% in the third quarter.

Despite the report, which technically marked an end to the recession, the officials said the near-term outlook is not very promising and lower rates are needed to boost the economy.

Private economists agreed and said the Fed is likely to ease monetary policy soon, especially given fresh evidence in the GNP report that inflation has cooled considerably.

Market expectations of lower rates also were boosted by a separate report yesterday from the Conference Board showing that consumer confidence fell sharply in October.

The New York-based business organization said ts consumer confidence index tumbled from 72.9 in September to 60.4 this month, only six points higher than at the bottom of the last recession. The drop was the sixth in the last seven months, after the index hit a high of 81.1 following the end of the Persian Gulf war.

"It sounds like the Fed's going to ease, and I think everybody expects that's going to happen," said Stephen Axilrod, vice chairman of Nikko Securities Co. International. "I think we're essentially fiddling around in a little trough. The recession is over, but I don't think we're starting a recovery yet."

Commerce Secretary Robert Mosbacher, in comments at an award ceremony for three U.S. electronics firms, said lower interest rates can be only help the economy, which he called "sluggish." He added that "inflationary pressures are minimal."

"The economy is moving forward,' said J. antonio Villamil, chief economist for the Commerce Department. "However, the economy apparently ended the third quarter with somewhat less momentum than [when] it started."

The advance GNP report, which is subject to revision in the next two months, said the fixed-weight measure of inflation rose at an annual rate of only 2.1%. A separate measure of inflation, the implicit price deflator, advanced only 1.8%. Both figures marked a considerable improvement over recent quarters and were better than expected, helping to spark a rally in the bond market yesterday.

"Most people in the administration believe that it would be appropriate for the Federal Reserve to ease," one White House official said. The official said that despite recent increases in the weekly money supply measures, the M2 measure of money has advanced at an annual rate of only 2.4% -- still below the Fed's target range of 2.5% to 6.5%.

Mr. Villamil also called attention to the slow growth in the money supply in his comments to reporters. The Federal Open MArket Committee, the Fed's policymaking panel, is scheduled to meet Nov. 5. With the GNP figures showing only small price increases and a renewed sense that the economy is not doing very well, the way is open for another cut by the Fed in short-term rates, analysts said.

The Washington Post reported yesterday that the FOMC voted at its last meeting to give Federal Reserve Board Chairman Alan Greenspan authority to lower short-term rates by 50 basis points, which would take the federal funds rate down to 4.75%, from 5.25%. Fed officials could not be reached for comment, but market expectations are widespread that action will occur soon.

"Inflation is at an extremely low level," said Marcos Jones, first vice president for Deutsche Bank Capital. "These kinds of numbers would satisfy even the Bundesbank."

A separate report from the Labor Department yesterday said employment costs in the third quarter rose a modest 0.9%, continuing a gradual deceleration that began at the start of the year.

Wages and salaries rose only 0.5%, and for the year total compensation costs for business were up only 4.3%. The 2.4% advance in third-quarter GNP, equal to an increase of $24.2 billion in output, ended three consecutive contractions in the quarterly GNP accounts.

By definition, two consecutive quarters of decline mark a recession, so the increase meant the economy started growing again in the third quarter. However, private economists said the figures reflected a spurt in activity by businesses and consumers in June and July and that since then things seem to have turned sluggish again.

Mr. Greenspan admitted as much in his speech on Monday in Rhode Island, when he also complained again about the severity of the credit crunch. Nearly three quarters of the rise in GNP, or $18.2 billion, came from a change in business inventories as firms slowed the pace at which they reduced their stocks of goods. Excluding inventories, real final sales -- which measure demand -- increased only $6 billion, or 0.6%.

Analysts also noted that consumer spending, another major source of strength in the report, was suspect. Total personal consumption expenditures rose 3.8%, led by a gain in purchases of automobiles and other durable goods. However, auto sales have been doing poorly in recent months, and spending in general has slowed since the summer.

"Spending on durables remains below its pre-recession peak, and there is some doubt as to whether the rise in consumption is sutainable," said Jerry Jasinowski, president of the National Association of Manufacturers. "Slow gains in disposable incomes, high debt loads, low savings, and diminished home equity wealth are likely to keep conumer spending slow in the months to come."

Other components of the GNP report were mixed. Business investment increased 6.6%, and residential investment shot up 20.6%. But government spending decreased, and the trade sector deteriorated for the second quarter in a row as imports shot up and exports virtually stalled.

"In October, we're stalled again," said Donald Ratajczak, director of the economic forecasting center for Georgia State University. "You kind of add it all up, and you say there is not a lot out there, except for a little bit of manufacturing, to push us forward."

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